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Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-11840 July 26, 1960

ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO C. GOQUIOLAY, plaintiffs-
appellants,
vs.
WASHINGTON Z. SYCIP, ET AL., defendants-appellees.

Jose C. Colayco, Manuel O. Chan and Padilla Law Offices for appellants.
Sycip, Quisumbing, Salazar and Associates for appellees.

REYES, J. B. L., J.:

Direct appeal from the decision of the Court of First Instance of Davao (the amount involved being more than
P200,00) dismissing the plaintiffs-appellants' complaint.

From the stipulation of facts of the parties and the evidence on record, it would appear that on May 29, 1940, Tan
Sin An and Antonio C. Goquiolay", entered into a general commercial partnership under the partnership name "Tan
Sin An and Antonio C. Goquiolay", for the purpose in dealing in real state. The partnership had a capital of
P30,000.00, P18,000.00 of which was contributed by Goquiolay and P12,000.00 by Tan Sin An. The agreement
lodge upon Tan Sin An the sole management of the partnership affairs, stipulating that —

III. The co-partnership shall be composed of said Tan Sin An as sole managing and partner (sic), and Antonio
C. Goquiolay as co-partner.

IV. Vhe affairs of co-partnership shall be managed exclusively by the managing and partner (sic) or by his
authorized agent, and it is expressly stipulated that the managing and partner (sic) may delegate the entire
management of the affairs of the co-partnership by irrevocable power of attorney to any person, firm or
corporation he may select upon such terms as regards compensation as he may deem proper, and vest in
such persons, firm or corporation full power and authority, as the agent of the co-partnership and in his name,
place and stead to do anything for it or on his behalf which he as such managing and partner (sic) might do or
cause to be done.

V. The co-partner shall have no voice or participation in the management of the affairs of the co-partnership;
but he may examine its accounts once every six (6) months at any time during ordinary business hours, and
in accordance with the provisions of the Code of Commerce. (Article of Co-Partnership).

The lifetime of the partnership was fixed at ten (10) years and also that —

In the event of the death of any of the partners at any time before the expiration of said term, the co-
partnership shall not be dissolved but will have to be continued and the deceased partner shall be
represented by his heirs or assigns in said co-partnership (Art. XII, Articles of Co-Partnership).

However, the partnership could be dissolved and its affairs liquidated at any time upon mutual agreement in writing
of the partners (Art. XIII, articles of Co-Partnership).

On May 31, 1940, Antonio Goquiolay executed a general power of attorney to this effect:

That besides the powers and duties granted the said Tan Sin An by the articles of co-partnership of said co-
partnership "Tan Sin An and Antonio Goquiolay", that said Tan Sin An should act as the Manager for said co-
partnership for the full period of the term for which said co-partnership was organized or until the whole period
that the said capital of P30,000.00 of the co-partnership should last, to carry on to the best advantage and
interest of the said co-partnership, to make and execute, sign, seal and deliver for the co-partnership, and in
its name, all bills, bonds, notes, specialties, and trust receipts or other instruments or documents in writing
whatsoever kind or nature which shall be necessary to the proper conduction of the said businesses,
including the power to mortgage and pledge real and personal properties, to secure the obligation of the co-
partnership, to buy real or personal properties for cash or upon such terms as he may deem advisable, to sell
personal or real properties, such as lands and buildings of the co-partnership in any manner he may deem
advisable for the best interest of said co-partnership, to borrow money on behalf of the co-partnership and to
issue promissory notes for the repayment thereof, to deposit the funds of the co-partnership in any local bank
or elsewhere and to draw checks against funds so deposited ... .

On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay" purchased the three (3) parcels of land,
known as Lots Nos. 526, 441 and 521 of the Cadastral Survey of Davao, subject-matter of the instant litigation,
assuming the payment of a mortgage obligation of P25,000.00, payable to "La Urbana Sociedad Mutua de
Construccion y Prestamos" for a period of ten (10) years, with 10% interest per annum. Another 46 parcels were
purchased by Tan Sin An in his individual capacity, and he assumed payment of a mortgage debt thereon for
P35,000.00 with interest. The downpayment and the amortization were advanced by Yutivo and Co., for the account
of the purchasers.

On September 25, 1940, the two separate obligations were consolidated in an instrument executed by the
partnership and Tan Sin An, whereby the entire 49 lots were mortgaged in favor of the "Banco Hipotecario de
Filipinas" (as successor to "La Urbana") and the covenantors bound themselves to pay, jointly and severally, the
remaining balance of their unpaid accounts amounting to P52,282.80 within eight 8 years, with 8% annual interest,
payable in 96 equal monthly installments.

On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow, Kong Chai Pin, and four minor children,
namely: Tan L. Cheng, Tan L. Hua, Tan C. Chiu and Tan K. Chuan. Defendant Kong Chai Pin was appointed
administratrix of the intestate estate of her deceased husband.

In the meantime, repeated demands for payment were made by the Banco Hipotecario on the partnership and on
Tan Sin An. In March, 1944, the defendant Sing Yee and Cuan, Co., Inc., upon request of defendant Yutivo Sans
Hardware Co., paid the remaining balance of the mortgage debt, and the mortgage was cancelled.

Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. filed their claims in the intestate
proceedings of Tan Sin An for P62,415.91 and P54,310.13, respectively, as alleged obligations of the partnership
"Tan Sin An and Antonio C. Goquiolay" and Tan Sin An, for advances, interest and taxes paid in amortizing and
discharging their obligations to "La Urbana" and the "Banco Hipotecario". Disclaiming knowledge of said claims at
first, Kong Chai Pin later admitted the claims in her amended answer and they were accordingly approved by the
Court.

On March 29, 1949, Kong Chai Pin filed a petition with the probate court for authority to sell all the 49 parcels of land
to Washington Z, Sycip and Betty Y. Lee, for the purpose preliminary of settling the aforesaid debts of Tan Sin An
and the partnership. Pursuant to a court order of April 2, 1949, the administratrix executed on April 4, 1949, a deed
of sale1 of the 49 parcels of land to the defendants Washington Sycip and Betty Lee in consideration of P37,000.00
and of vendees' assuming payments of the claims filed by Yutivo Sons Hardware Co. and Sing Yee and Cuan Co.,
Inc. Later, in July, 1949, defendants Sycip and Betty Lee executed in favor of the Insular Development Co., Inc. a
deed of transfer covering the said 49 parcels of land.

Learning about the sale to Sycip and Lee, the surviving partner Antonio Goquiolay filed, on or about July 25, 1949, a
petition in the intestate proceedings seeking to set aside the order of the probate court approving the sale in so far
as his interest over the parcels of land sold was concerned. In its order of December 29, 1949, the probate court
annulled the sale executed by the administratrix with respect to the 60% interest of Antonio Goquiolay over the
properties sold. Kong Chai Pin appealed to the Court of Appeals, which court later certified the case to us (93 Phil.,
413; 49 Off. Gaz. [7] 2307). On June 30, 1953, we rendered decision setting aside the orders of the probate court
complained of and remanding the case for new trial, due to the non-inclusion of indispensable parties. Thereafter,
new pleadings were filed.

The second amended complaint in the case at bar prays, among other things, for the annulment of the sale in favor
of Washington Sycip and Betty Lee, and their subsequent conveyance in favor of Insular Development Co., Inc., in
so far as the three (3) lots owned by the plaintiff partnership are concerned. The answer averred the validity of the
sale by Kong Chai Pin as successor partner, in lieu of the late Tan Sin An. After hearing, the complaint was
dismissed by the lower court in its decision dated October 30, 1956; hence, this appeal taken directly to us by the
plaintiffs, as the amount involved is more than P200,000.00. Plaintiffs-appellants assign as errors that —

I — The lower court erred in holding that Kong Chai Pin became the managing partner of the partnership
upon the death of her husband, Tan Sin An, by virtue of the articles of Partnership executed between Tan Sin
An and Antonio Goquiolay, and the general power of attorney granted by Antonio Goquiolay.

II — The lower court erred in holding that Kong Chai Pin could act alone as sole managing partner in view of
the minority of the other heirs.

III — The lower court erred in holding that Kong Chai Pin was the only heir qualified to act as managing
partner.

IV — The lower court erred in holding that Kong Chai Pin had authority to sell the partnership properties by
virtue of the articles of partnership and the general power of attorney granted to Tan Sin An in order to pay the
partnership indebtedness.

V — The lower court erred in finding that the partnership did not pay its obligation to the Banco Hipotecario.

VI — The lower court erred in holding that the consent of Antonio Goquiolay was not necessary to
consummate the sale of the partnership properties.

VII — The lower court erred in finding that Kong Chai Pin managed the business of the partnership after the
death of her husband, and that Antonio Goquiolay knew it.

VIII — The lower court erred in holding that the failure of Antonio Goquiolay to oppose the management of the
partnership by Kong Chai Pin estops him now from attacking the validity of the sale of the partnership
properties.

IX — The lower court erred in holding that the buyers of the partnership properties acted in good faith.

X — The lower court erred in holding that the sale was not fraudulent against the partnership and Antonio
Goquiolay.

XI — The lower court erred in holding that the sale was not only necessary but beneficial to the partnership.

XII — The lower court erred in dismissing the complaint and in ordering Antonio Goquiolay to pay the costs of
suit.

There is a merit in the contention that the lower court erred in holding that the widow, Kong Chai Pin, succeeded her
husband, Tan Sin An, in the sole management of the partnership, upon the latter's death. While, as we previously
stated in our narration of facts, the Articles of Co-Partnership and the power of attorney executed by Antonio
Goquiolay, conferred upon Tan Sin An the exclusive management of the business, such power, premised as it is
upon trust and confidence, was a mere personal right that terminated upon Tan's demise. The provision in the
articles stating that "in the event of death of any one of the partners within the 10-year term of the partnership, the
deceased partner shall be represented by his heirs", could not have referred to the managerial right given to Tan Sin
An; more appropriately, it related to the succession in the proprietary interest of each partner. The covenant that
Antonio Goquiolay shall have no voice or participation in the management of the partnership, being a limitation upon
his right as a general partner, must be held coextensive only with Tan's right to manage the affairs, the contrary not
being clearly apparent.

Upon the other hand, consonant with the articles of co-partnership providing for the continuation of the firm
notwithstanding the death of one of the partners, the heirs of the deceased, by never repudiating or refusing to be
bound under the said provision in the articles, became individual partners with Antonio Goquiolay upon Tan's
demise. The validity of like clauses in partnership agreements is expressly sanctioned under Article 222 of the Code
of Commerce.2

Minority of the heirs is not a bar to the application of that clause in the articles of co-partnership (2 Vivante, Tratado
de Derecho Mercantil, 493; Planiol, Traite Elementaire de Droit Civil, English translation by the Louisiana State Law
Institute, Vol. 2, Pt. 2, p. 177).

Appellants argue, however, that since the "new" members' liability in the partnership was limited merely to the value
of the share or estate left by the deceased Tan Sin An, they became no more than limited partners and, as such,
were disqualified from the management of the business under Article 148 of the Code of Commerce. Although
ordinarily, this effect follows from the continuance of the heirs in the partnership,3 it was not so with respect to the
widow Kong Chai Pin, who, by her affirmative actions, manifested her intent to be bound by the partnership
agreement not only as a limited but as a general partner. Thus, she managed and retained possession of the
partnership properties and was admittedly deriving income therefrom up to and until the same were sold to
Washington Sycip and Betty Lee. In fact, by executing the deed of sale of the parcels of land in dispute in the name
of the partnership, she was acting no less than as a managing partner. Having thus preferred to act as such, she
could be held liable for the partnership debts and liabilities as a general partner, beyond what she might have
derived only from the estate of her deceased husband. By allowing her to retain control of the firm's property from
1942 to 1949, plaintiff estopped himself to deny her legal representation of the partnership, with the power to bind it
by the proper contracts.

The question now arises as to whether or not the consent of the other partners was necessary to perfect the sale of
the partnership properties to Washington Sycip and Betty Lee. The answer is, we believe, in the negative. Strangers
dealing with a partnership have the right to assume, in the absence of restrictive clauses in the co-partnership
agreement, that every general partner has power to bind the partnership, specially those partners acting with
ostensible authority. And so, we held in one case:

. . . Third persons, like the plaintiff, are not bound in entering into a contract with any of the two partners, to
ascertain whether or not this partner with whom the transaction is made has the consent of the other partner.
The public need not make inquiries as to the agreements had between the partners. Its knowledge is enough
that it is contracting with the partnership which is represented by one of the managing partners.

"There is a general presumption that each individual partner is an agent for the firm and that he has authority
to bind the firm in carrying on the partnership transactions." [Mills vs. Riggle, 112 Pac., 617]

"The presumption is sufficient to permit third persons to hold the firm liable on transactions entered into by
one of the members of the firm acting apparently in its behalf and within the scope of his authority." [Le Roy
vs. Johnson, 7 U.S. Law, Ed., 391] (George Litton vs. Hill & Ceron, et al., 67 Phil., 513-514).

We are not unaware of the provision of Article 129 of the Code of Commerce to the effect that —

If the management of the general partnership has not been limited by special agreement to any of the
members, all shall have the power to take part in the direction and management of the common business,
and the members present shall come to an agreement for all contracts or obligations which may concern the
association. (Emphasis supplied)

but this obligation is one imposed by law on the partners among themselves, that does not necessarily affect the
validity of the acts of a partner, while acting within the scope of the ordinary course of business of the partnership,
as regards third persons without notice. The latter may rightfully assume that the contracting partner was duly
authorized to contract for and in behalf of the firm and that, furthermore, he would not ordinarily act to the prejudice
of his co-partners. The regular course of business procedure does not require that each time a third person
contracts with one of the managing partners, he should inquire as to the latter's authority to do so, or that he should
first ascertain whether or not the other partners had given their consent thereto. In fact, Article 130 of the same
Code of Commerce provides that even if a new obligation was contracted against the express will of one of the
managing partners, "it shall not be annulled for such reason, and it shall produce its effects without prejudice to the
responsibility of the member or members who contracted it, for the damages they may have caused to the common
fund."

Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115) points out:

367. Primera hipotesis. — A falta de pactos especiales, la facultad de administrar corresponde a cada socio
personalmente. No hay que esperar ciertamente concordia con tantas cabezas, y para cuando no vayan de
acuerdo, la disciplina del Codigo no ofrece un sistema eficaz que evite los inconvenientes. Pero, ante el
silencio del contrato, debia quiza el legislador privar de la administracion a uno de los socios en beneficio del
otro? Seria una arbitrariedad. Debera quiza declarar nula la Sociedad que no haya elegido Administrador? El
remedio seria peor que el mal. Debera, tal vez, pretender que todos los socios concurran en todo acto de la
Sociedad? Pero este concurso de todos habria reducido a la impotencia la administracion, que es asunto d
todos los dias y de todas horas. Hubieran sido disposiciones menos oportunas que lo adoptado por el
Codigo, el cual se confia al espiritu de reciproca confianza que deberia animar la colaboracion de los socios,
y en la ley inflexible de responsabilidad que implica comunidad en los intereses de los mismos.

En esta hipotesis, cada socio puede ejercer todos los negocios comprendidos en el contrato social sin dar de
ello noticia a los otros, porque cada uno de ellos ejerce la administracion en la totalidad de sus relaciones,
salvo su responsabilidad en el caso de una administracion culpable. Si debiera dar noticia, el beneficio de su
simultania actividad, frecuentemente distribuida en lugares y en tiempos diferentes, se echaria a perder. Se
objetara el que de esta forma, el derecho de oposicion de cada uno de los socios puede quedar frustrado.
Pero se puede contestar que este derecho de oposicion concedido por la ley como un remedio excepcional,
debe subordinarse al derecho de ejercer el oficio de Administrador, que el Codigo concede sin limite: "se
presume que los socios se han concedido reciprocamente la facultad de administrar uno para otro." Se haria
precipitar esta hipotesis en la otra de una administracion colectiva (art. 1,721, Codigo Civil) y se acabaria con
pedir el consentimiento, a lo menos tacito, de todos los socios — lo que el Codigo excluye ........, si se
obligase al socio Administrador a dar noticia previa del negocio a los otros, a fin de que pudieran oponerse si
no consintieran.

Commenting on the same subject, Gay de Montella (Codigo de Comercio, Tomo II, 147-148) opines:

Para obligar a las Compañias enfrente de terceros (art. 128 del Codigo), no es bastante que los actos y
contratos hayan sido ejecutados por un socio o varios en nombre colectivo, sino que es preciso el concurso
de estos dos elementos, uno, que el socio o socios tengan reconocida la facultad de administrar la
Compañia, y otro, que el acto o contrato haya sido ejecutado en nombre de la Sociedad y usando de su firma
social. Asi se que toda obligacion contraida bajo la razon social, se presume contraida por la Compañia. Esta
presunion es impuesta por motivos de necesidad practica. El tercero no puede cada vez que trata con la
Compañia, inquirir si realmente el negocio concierne a la Sociedad. La presuncion es juris tantum y no juris
et de jure, de modo que si el gerente suscribe bajo la razon social una obligacion que no interesa a la
Sociedad, este podra rechazar la accion del tercero probando que el acreedor conocia que la obligacion no
tenia ninguna relacion con ella. Si tales actos y contratos no comportasen la concurrencia de ambos
elementos, seria nulos y podria decretarse la responsabilidad civil o penal contra sus autores.
 En el caso que tales actos o contratos hayan sido tacitamente aprobados por la Compañia, o contabilizados
en sus libros, si el acto o contrato ha sido convalidado sin protesta y se trata de acto o contrato que ha
producido beneficio social, tendria plena validez, aun cuando le faltase algunos o ambos de aquellos
requisitos antes señalados.

Cuando los Estatutos o la escritura social no contienen ninguna clausula relativa al nombramiento o
designacion de uno o mas de un socio para administrar la Compañia (art. 129 del Codigo) todos tienen por
un igual el derecho de concurir a la decision y manejo de los negocios comunes. . . .

Although the partnership under consideration is a commercial partnership and, therefore, to be governed by the
Code of Commerce, the provisions of the old Civil Code may give us some light on the right of one partner to bind
the partnership. States Art. 1695 thereof:

Should no agreement have been made with respect to the form of management, the following rules shall be
observed:

1. All the partners shall be considered agents, and whatever any one of the may do individually shall bind the
partnership; but each one may oppose any act of the others before it has become legally binding.

The records fail to disclose that appellant Goquiolay made any opposition to the sale of the partnership realty to
Washington Z. Sycip and Betty Lee; on the contrary, it appears that he (Goquiolay) only interposed his objections
after the deed of conveyance was executed and approved by the probate court, and, consequently, his opposition
came too late to be effective.

Appellants assails the correctness of the amounts paid for the account of the partnership as found by the trial court.
This question, however, need not be resolved here, as in the deed of conveyance executed by Kong Chai Pin, the
purchasers Washington Sycip and Betty Lee assumed, as part consideration of the purchase, the full claims of the
two creditors, Sing Yee and Cuan Co., Inc. and Yutivo Sons Hardware Co.

Appellants also question the validity of the sale covering the entire firm realty, on the ground that it, in effect, threw
the partnership into dissolution, which requires consent of all the partners. This view is untenable. That the
partnership was left without the real property it originally had will not work its dissolution, since the firm was not
organized to exploit these precise lots but to engage in buying and selling real estate, and "in general real estate
agency and brokerage business". Incidentally, it is to be noted that the payment of the solidary obligation of both the
partnership and the late Tan Sin An, leaves open the question of accounting and contribution between the co-
debtors, that should be ventilated separately.

Lastly, appellants point out that the sale of the partnership properties was only a fraudulent device by the appellees,
with the connivance of Kong Chai Pin, to ease out Antonio Goquiolay from the partnership. The "devise", according
to the appellants, started way back sometime in 1945, when one Yu Khe Thai sounded out Antonio Goquiolay on
the possibility of selling his share in the partnership; and upon his refusal to sell, was followed by the filing of the
claims of Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. in the intestate estate proceedings of Tan Sin
An. As creditors of Tan Sin An and the plaintiff partnership (whose liability was alleged to be joint and several),
Yutivo Sons Hardware Co., and Sing Yee Cuan Co., Inc. had every right to file their claims in the intestate
proceedings. The denial of the claims at first by Kong Chai Pin ( for lack of sufficient knowledge) negatives any
conspiracy on her part in the alleged fraudulent scheme, even if she subsequently decided to admit their validity
after studying the claims and finding it best to admit the same. It may not be amiss to remark that the probate court
approved the questioned claims.

There is complete failure of proof, moreover, that the price for which the properties were sold was unreasonably low,
or in any way unfair, since appellants presented no evidence of the market value of the lots as of the time of their
sale to appellees Sycip and Lee. The alleged value of P31,056.58 in May of 1955 is no proof of the market value in
1949, specially because in the interval, the new owners appear to have converted the land into a subdivision, which
they could not do without opening roads and otherwise improving the property at their own expense. Upon the other
hand, Kong Chai Pin hardly had any choice but to execute the questioned sale, as it appears that the partnership
had neither cash nor other properties with which to pay its obligations. Anyway, we cannot consider seriously the
inferences freely indulged in by the appellants as allegedly indicating fraud in the questioned transactions, leading to
the conveyance of the lots in dispute to the appellee Insular Development Co., Inc.

Wherefore, finding no reversible error in the appealed judgment, we affirm the same, with costs against appellant
Antonio Goquiolay.

Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia, Barrera, and Gutierrez David, JJ., concur.

RESOLUTION

December 10, 1963

REYES, J. B. L., J.:

The matter now pending is the appellant's motion for reconsideration of our main decision, wherein we have upheld
the validity of the sale of the lands owned by the partnership Goquiolay & Tan Sin An, made in 1949 by the widow of
the managing partner, Tan Sin An (executed in her dual capacity of Administratrix of her husband's estate and as
partner, in lieu of the husband), in favor of buyers Washington Sycip and Betty Lee for the following consideration:

Cash paid P37,000.00

Debts assumed by purchase:
To Yutivo 62,415.91
To Sing Yee Cuan & Co. 54,310.13
TOTAL P153,726.04

Appellant Goquiolay, in his motion for reconsideration, insists that, contrary to our holding, Kong Chai Pin, widow of
the deceased partner Tan Sin An, never became more than a limited partner, incapacitated by law to manage the
affairs of the partnership; that the testimony of her witnesses Young and Lim belies that she took over administration
of the partnership property; and that, in any event, the sale should be set aside because it was executed with the
intent to defraud appellant of his share in the properties sold.

Three things must be always held in mind in the discussion of this motion to reconsider, being basic and beyond
controversy:
(a) That we are dealing here with the transfer of partnership property by one partner, acting in behalf of the firm, to a
stranger. There is no question between partners inter se, and this aspects of the case was expressly reserved in the
main decision of 26 July 1960;

(b) That the partnership was expressly organized "to engage in real estate business, either by buying and selling
real estate". The Article of co-partnership, in fact, expressly provided that: